THE WORLD ECONOMY

In October 2008, the authors were already projecting that 2009 would see the worst recession in the OECD economies since 1982, and if the resolution of problems in the banking sector were to be delayed then the outcome would be much worse. After peaking in October 2008, spreads on interbank rates ha...

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Bibliographic Details
Published in:National Institute economic review 2009-01 (207), p.10-38
Main Author: Holland, Dawn
Format: Article
Language:English
Subjects:
Banking
Banking industry
Economic conditions
Economic forecasts
Economic statistics
Global economy
Group of Seven
International
Online Access:Get full text
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Summary:In October 2008, the authors were already projecting that 2009 would see the worst recession in the OECD economies since 1982, and if the resolution of problems in the banking sector were to be delayed then the outcome would be much worse. After peaking in October 2008, spreads on interbank rates had reverted towards normal levels by the turn of the year, and interbank lending appears to have been restored. However, governments have been slow to follow up the five-point plan with concrete action, and banks retain huge levels of toxic debt on their balance sheets, intensified by further credit losses and declining asset values as a result of high corporate bond yields. The failure of governments to step in and restore capital adequacy to the banking sector has allowed economic prospects to deteriorate sharply. With forward looking markets and consumers, any delay in restoring capital adequacy to the banking sector has immediate and severe impacts on the short-term outlook.
ISSN:0027-9501
1741-3036